Overcoming Skepticism about Energy Upgrades

by | Nov 16, 2015

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In my practice, the most difficult problem I face is the skepticism of property owners and managers when it comes to the savings potential of energy upgrades. When dealing with fellow engineers and scientists, simply explaining the options and benefits is enough for them to have confidence that the technology will work. But the real estate community thinks differently and, I’ve learned, greatly fears any perceived risk. Even if there is a tiny chance in their minds that a potential energy upgrade may fail, they prefer to stick with the status quo.

Commercial energy efficiency upgrades, therefore, are low priority items. What factors hold the industry back from going forward on sure, beneficial, cost-saving projects?

As I mentioned above, building owners are skeptical that energy retrofits will deliver a strong return on investment in the field. Some worry that a new technology may work “in theory, but not in my building, with my tenants!” But in most cases it is simple math; a 15-watt LED replacing a 60-watt light will save 75 percent given the same usage. Really!

Owners are also concerned that overworked staff cannot oversee equipment performance and determine whether an upgrade is really achieving proposed energy efficiency gains. Many building owners also believe that energy is a relatively small cost of their business compared to salaries, taxes and infrastructure. And if you take proposed annual energy savings and divide that by 12 months and the number of units, then energy cost savings is really small, in their eyes, relative to the rent collected.

It is even a cultural matter, as building staff tend to think it is okay to overwork (“Hey! It’s old!”) to maintain equipment until it practically breaks down, rather than upgrade early to save labor. Staff is used to addressing day-to-day issues rather than thinking long-term.

How can this be overcome? Some in the insurance industry now offer insurance to guarantee energy performance. For payment of a certain premium, a building owner will know that its building’s energy upgrades will meet a certain performance or energy cost savings after being fully implemented. If real cost savings is less than that guaranteed, then the insurance company will pay the difference. Thus, for a premium, the building owner can now be assured that the proposed upgrade will meet its stated promise.

A second issue is financing. Many real estate owners already borrow greatly just to afford the buildings they own, and may have trouble qualifying for further financing. Property-assessed clean energy (PACE) and on-bill financing are existing options addressing financing. PACE loan repayment appears on one’s property tax assessment and, therefore, is considered a higher priority than a mortgage. On-bill financing programs allow repayment based on utility bills. Government incentives exist to allow institutions to issue financing at lower rates than conventional loans, particularly for small buildings, affordable housing, or those owned by non-profits. Building owners can also take advantage of competition among financing firms, as the excellent return on investment of energy projects is well known and better assures the institution that a loan will be repaid.

Between lowered costs, low-interest-rate financing, existence of government incentives (which are likely to disappear), and improved technology, there has truly never been a better time for a building owner or manager to invest in a smart energy upgrade to save energy costs, reduce O&M, and raise asset value. Believe it; it is real, it is spectacular, and it will benefit you and your occupants greatly!

Marc Karell is owner of Climate Change & Environmental Services. CCES has the experience to help your building upgrade your energy systems in a smart and reliable way, ensuring success and maximizing both cost savings and other benefits. Contact us today at 914-584-6720 or [email protected].

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